SMRT warns profit will drop in the next 12 months

It'll be a rough ride for the company.

According to Nomura, 9MFY13F profit came in at 67% of the firm's full-year estimate, below expectations due to lower than expected revenues and higher than expected costs.

The lower than expected revenues were largely due to the rail segment which saw i) average fare increasing at a much slower rate (↑0.2% y-y) and ii) y-y ridership growth of only 4.9%, partly due to the Circle Line coming in below expectations.

Circle Line’s daily ridership came in at 338,000, up 5% from 1QFY13F but down on a q-q basis. This, coupled with higher than expected repair/maintenance costs, offset
by lower than expected electricity/diesel costs, led to the results coming in below expectations.

Here's more from Nomura:

The train and bus segments will see lower profitability and margins going forward due to higher costs. Separately, the group is not planning to expand its taxi fleet and also potentially not replace vehicles taken out of service, if the CoE remains at current elevated levels.

Going into 4QFY13F, they expect commercial space to remain at current levels.

Management guides that profitability in 4QFY13 and the next 12 months will deteriorate due to higher operating costs. The fare business will be most impacted.

Higher staff costs will inflict both Trains and Buses due to i) increased headcount and ii) wage adjustments. Current staff strength is 7,350, while targeted size by end-FY13F is 7,700, with the bulk of the hiring for train maintenance staff and bus drivers.

Management indicates that hiring has been slow due to the tight labour market.

Separately, higher depreciation and repair/maintenance cost will hit the Train segment specifically due to i) a larger fleet, ii) taking over of the Dover & Changi stations from LTA and iii) continuing efforts to enhance service and reliability of the rail network

The group incurred capex of S$161.7mn YTD, up from S$118.5mn in 1HFY13. They expect full year capex to be S$350 – 400mn, down from initial projection of S$500mn, with the difference of S$100 – 150mn being delayed into FY14F instead.

They expect to make payment of S$300mn on the outstanding 17 trains, which is accounted as trade payables on the balance sheet, by the end of FY13F.

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